ETF Spotlight: EFUT Climbs Amid Ether Surge

The futures-based VanEck Ethereum Strategy ETF (EFUT) has jumped more than 18% over the past five trading days, a reflection of the surging optimism about potential approval of a fund based on the spot price of the world's second largest cryptocurrency.

In Thursday trading, the $31.3 million exchange-traded fund, which began trading in October, added 1.7% to $29.50 per share. The jump came as markets await a decision by the Securities and Exchange Commission on a VanEck proposal for a spot ether-based ETF and potentially other applications the agency has been weighing for months. Ether, the No. 2 cryptocurrency by market value after bitcoin, is up almost 36% year-to-date. 

Ether, which is the token of the Ethereum smart contracts blockchain, was recently changing hands at about $3,700, roughly flat over the past 24 hours, and has skyrocketed more than 25% during the last week to reach its highest levels since the middle of March, according to CoinMarketCap.com, which tracks crypto market activity. Much of those gains came early this week as the SEC appeared more inclined to approve a spot Ethereum ETF after the proposed products' prospects seemed unlikely for weeks. 

Ether open futures interest jumped 25% to $14 billion over one 24-hour period beginning Tuesday, according to Coinglass, a provider of cryptocurrency data. Blockchain-based Smart contracts are self-driven programs that automate agreements between parties and aim to create greater efficiency for transactions in a range of industries. 

Ether Price Fluctuations

EFUT actively manages a portfolio composed of USD, cash-settled ether (ETH) futures contracts, but does not invest in the cryptocurrency directly or other digital assets. Its goal is to maintain 100% economic exposure to ether. In some cases, such as for tax liabilities, exposure may temporarily exceed 100% (up to 125%). 

The fund uses inherent leverage in ether futures as well as from borrowing for potential amplified returns. However, this characteristic heightens the fund's risk, making it sensitive to fluctuations in ETH prices. To reduce risks, the fund holds a variety of short-term debts. In situations where it does not meet target exposure, it may invest in other ether-linked investments.